Tax consequences when gifting appreciated stock to family member

Your son will owe capital gains tax on the difference between the sale price and your original cost basis. When you gift stock, the recipient inherits your cost basis and holding period. So even though the stock value didn't change while he owned it, the IRS still considers all the appreciation that occurred while you owned it. For example, if you bought the stock for $2,000 years ago and it was worth $10,000 when you gifted it to your son (who then sold it for $10,000), he would owe capital gains tax on the $8,000 gain. The rate depends on his income and how long you held the stock before gifting. As for you, you're right that there's no tax consequence for gifting under the annual exclusion amount (currently $17,000 per recipient). You don't need to file a gift tax return as long as you stayed under that threshold.

I went through exactly this situation last year and found an amazing tool that saved me hours of frustration. Check out https://taxr.ai - it analyzes your stock transactions and tells you exactly what you need to report on your taxes. When my mom gifted me some Apple shares she'd owned since 2005, I had no idea what her original cost basis was. The taxr.ai system let me upload the gift letter and her old statements, then calculated everything correctly. It even explained that I needed her original purchase dates to determine if these qualified for long-term capital gains treatment. Definitely worth checking out if you're dealing with gifted stocks!

I have to admit I was really skeptical about taxr.ai but decided to try it anyway since I was completely stuck with these gifted stocks from my dad. The system actually helped me request basis information directly from his brokerage, which I didn't know was possible since he had passed away. It turns out they had records going back to the 1990s! The tool automatically calculated the adjusted basis and generated all the documentation I needed for my tax return. It even flagged that some of the shares had been split multiple times, which would have completely messed up my calculations. Saved me from what would have been a major headache (and probably an incorrect tax filing).

If you need clarification from the IRS about this gifted stock situation, good luck trying to get someone on the phone! I spent WEEKS trying before finding https://claimyr.com which got me through to an IRS agent in under 45 minutes. They have this system that basically waits on hold for you and calls when an actual human picks up. I was super doubtful, but you can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed everything about the gifted stock basis rules and documented it in my account. Totally worth it for the peace of mind knowing I was filing correctly, especially with something complicated like gifted securities.

I have to publicly eat my words here. After seeing the replies, I decided to try Claimyr for myself since I've been trying to reach the IRS about some stock basis issues for literally 3 months with no success. Got a call back in about an hour and actually spoke to someone who knew what they were talking about! The agent confirmed that gifted stock keeps the original owner's cost basis AND holding period (which I didn't know), and that's now documented in my case file. I'm still shocked this actually worked. Sorry for doubting - sometimes good services really do exist!

Something important to remember about gifted stock: there's actually a special rule if the stock has DECREASED in value since the original owner purchased it. If the market value at time of gift is LOWER than the original owner's cost basis, then the recipient's basis for calculating loss is the fair market value at time of gift. But for calculating gain, it's still the original owner's basis. So there's this weird middle ground where if you sell at a price between the FMV at gift time and the original basis, you have neither a gain nor a loss for tax purposes. Tax code is so weird lol.

Don't forget to keep ALL your documentation! My sister got audited over gifted stock because she couldn't prove the original basis. Make sure you have: 1. Documentation of when the original owner bought the stock and for how much 2. Documentation of the gift transfer (date and fair market value) 3. Documentation of your sale (date and proceeds) The IRS puts the burden of proof on you to substantiate the basis. Without proper documentation, they might treat the entire sale proceeds as gain!

Just wanted to add another important point about gifted stock timing - make sure you understand the holding period rules! When you receive gifted stock, you inherit the original owner's holding period for determining long-term vs short-term capital gains treatment. So in your case, even though your son only held the stock briefly before selling, if you had owned it for more than a year before gifting, his sale would qualify for long-term capital gains rates (which are generally more favorable than short-term rates). This can make a significant difference in the tax bill, especially for higher-income taxpayers. The key dates are: when you originally purchased the stock, when you gifted it, and when your son sold it. The IRS looks at the total time from your original purchase to his sale to determine the holding period classification.

One thing that might help clarify the tax implications for your son: he'll need Form 1099-B from his broker showing the sale proceeds, but the broker won't have the correct cost basis since they didn't know your original purchase price. Your son will need to report the correct basis (your original cost) on Form 8949 and Schedule D. This is a common source of confusion because the 1099-B might show the basis as the gift date value or even blank, but for tax purposes, your son must use your original purchase price as his basis. Make sure he has documentation of your original cost basis and purchase date - he'll need both to file correctly. The IRS computers will match the sale proceeds from the 1099-B, so it's crucial that he reports the transaction properly to avoid any automated notices. Also, since you mentioned the stock price didn't change between gift and sale, this makes the documentation easier since there's no question about the fair market value at the time of transfer.

Just to add to all the great information here - I went through a very similar situation with my daughter last year. One thing I learned that might be helpful: make sure to keep detailed records of the exact dates involved, especially if the stock price was volatile around the gift transfer date. Even though you mentioned the price didn't change between gift and sale, the IRS will want to see documentation of the fair market value on the actual gift date for their records. I used the closing price on the date of transfer and kept a screenshot of the stock quote from that day. Also, since your son immediately put the proceeds into CDs, that's actually a smart move tax-wise. The capital gains tax will be due on his return for this year, but the CD interest going forward will be taxed as ordinary income in future years when the CDs mature. Just something to keep in mind for his future tax planning. The good news is that since you stayed under the annual gift tax exclusion, this is a pretty straightforward transaction from a documentation standpoint. Your son just needs your original purchase price and date, plus proof of the gift transfer.